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Unit 1: Income Tax: Basic Framework

1. Charge to Income tax: Income tax is a tax payable, at the rate enacted by the Union Budget Notes
(Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year
by every Person. The chargeability is based on the nature of income, i.e., whether it is
revenue or capital.
Section 4 of the Income tax Act, 1961 is the charging section which provides that:
(i) tax shall be charged at the rates prescribed for the year by the annual Finance Act;
(ii) the charge is on every person specified under section 2(31);

(iii) tax is chargeable on the total income earned during the previous year and not the
assessment year. (There are certain exceptions provided by sections 172, 174, 174A,
175 and 176);

(iv) tax shall be levied in accordance with and subject to the various provisions contained
in the Act.
This section is the back bone of the law of income tax in so far as it serves as the most
operative provision of the Act. The tax liability of a person springs from this section.
2. Rates of Tax: Income tax is to be charged at the rates fixed for the year by the annual Finance

Act. Section 2 of the Finance Act, 2012 read with Part I of the First Schedule to the Finance
Act, 2012 specifies the rates at which income tax is to be levied on income chargeable to

tax for the A.Y. 2012-13. Part II lays down the rate at which tax is to be deducted at source
during the financial year 2012-13 i.e. A.Y. 2013-14 from income subject to such deduction

under the Act; Part III lays down the rates for charging income tax in certain cases, rates for
deducting income tax from income chargeable under the head “salaries” and the rates for
computing advance tax for the fi nancial year 2012-13 i.e. A.Y.2013-14. Part III of the First
Schedule to the Finance Act, 2012 will become Part I of the First Schedule to the Finance
Act, 2013 and so on.
The slab rates applicable for A.Y.2013-14 are as follows:
(i) Individual/Hindu Undivided Family (HUF)/Association of Persons (AOP)/Body of
Individuals (BOI)/Artificial Juridical Person.

Where the total income does not exceed ` 2,00,000 NIL
Where the total income exceeds ` 2,00,000 but 10% of the amount by which the total income
does not exceed ` 5,00,000 exceeds ` 2,00,000
Where the total income exceeds ` 5,00,000 but ` 30,000 plus 20% of the amount by which the total
does not exceed ` 10,00,000 income exceeds ` 5,00,000
Where the total income exceeds ` 10,00,000 ` 1,30,000 plus 30% of the amount by which the
total income exceeds ` 10,00,000
Source: http://220.227.161.86/18878sm_dtl_fi nalnew_cp1.pdf

Example: Mr. X has a total income of ` 12,00,000. Compute his gross tax liability.

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